Bloomberg News

EFSF Bailout Fund Plans 3 Billion-Euro Three-Year Bond Sale

January 04, 2012

(Adds sale timing in first, fifth paragraphs. See EXT4 <GO> for more on Europe’s debt crisis.)

Jan. 3 (Bloomberg) -- Europe’s bailout fund plans to raise 3 billion euros ($3.9 billion) from a sale of three-year bonds as soon as this week after Standard & Poor’s said in December it may lose its top credit rating.

The European Financial Stability Facility hired Credit Suisse Group AG, Deutsche Bank AG and Societe Generale SA to manage the deal, the fund’s first bond of this maturity and earmarked to help finance the bailouts of Ireland and Portugal, it said in an e-mailed statement. The sale will follow the EFSF’s first bills auction last month and a 3 billion-euro issue of February 2022 bonds on Nov. 7, 2011, according to data compiled by Bloomberg.

The EFSF plans to sell the bonds after S&P said Dec. 6 the fund may lose its AAA rating. The bailout fund, which is overseen by the euro-area members and sells debt to finance rescue loans extended to Europe’s high-debt and deficit nations, owes its top credit grade to guarantees from Germany, France, Netherlands, Luxembourg, Austria and Finland.

“They need to be quite generous to get this one both out of the door successfully and also leaving some room for tightening in the secondary market,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London.

Target Timing

The fund is targeting Jan. 5 for the sale, a person with knowledge of the matter said. The securities are “due to be launched shortly, subject to market conditions,” according to the EFSF statement.

The EFSF’s bonds have underperformed benchmark securities as politicians and policy makers failed to draw a line under Europe’s sovereign crisis, which roiled markets for most of last year. The EFSF may lose its top rating if one or more of its AAA rated guarantors are downgraded, S&P said, after putting 15 euro-region nations on review for a ratings cut.

Investors demand 142 basis points more than government debt to hold the fund’s 5 billion euros of July 2016 bonds, from a low of 45 basis points on March 28, according to Bloomberg Bond Trader prices. The EFSF’s 5 billion euros of notes maturing in 2021 have a yield spread of 133 basis points, from a low of 58 basis points on July 5.

--Editor: Paul Armstrong

To contact the reporter on this story: Ben Martin in London at bmartin38@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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